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Pennsylvania Federal Court Continues Trend Of Finding No Coverage For Covid-19 Business Interruption Losses

December 3, 2021

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<p style="text-align: justify;">As we have reported, policyholders have largely been unsuccessful in convincing Federal courts to declare that coverage exists for business interruption claims as a result of the COVID-19 pandemic. The United States District Court for the Eastern District of Pennsylvania continued this trend in its recent decision in <em><a href="https://www.wcmlaw.com/wp-content/uploads/2021/12/Delaware-Valley-Management-LLC-et-al.-v.-Continental-Casualty-Company.pdf">Delaware Valley Management, LLC, et al. v. Continental Casualty Company</a>.</em></p>
<p style="text-align: justify;">The plaintiffs in that case owned and operated a group of medical practices and sought coverage under an “all-risk” policy for economic losses suffered as a result of COVID-19 shutdowns. Plaintiffs alleged that they were required to suspend all surgeries and invasive procedures that could be delayed without risk to patient health. Plaintiffs remained in business but were allegedly forced to “considerably limit their business” as a result of the COVID-19 executive orders.</p>
<p style="text-align: justify;">Plaintiffs’ insurance policy included Business Income Coverage and Civil Authority Coverage. In relevant part, the policy provided coverage for all lost income sustained by the insured during a “necessary suspension” of “operations” during the “period of restoration” stemming from a “direct physical loss of or damage to” covered property. The Civil Authority coverage required that an action of civil authority that was caused by “a direct physical loss of or damage to a premises other than the Covered Property”, prohibits the insured’s access to the covered property.</p>
<p style="text-align: justify;">The insurer denied coverage and plaintiffs filed suit for breach of contract and declaratory judgment. The court ultimately granted the insurer’s motion for summary judgment, finding that plaintiffs had suffered no “physical damage to or loss of” their covered property to trigger coverage under the policy. In so holding, the court rejected plaintiffs’ interpretation of “loss” to include a partial loss of use of their facilities. The court also rejected plaintiffs’ argument that public fear of indoor establishments due to the pandemic caused a “physical loss of or damage to” the property to trigger coverage, instead holding that physical loss or damage requires a “distinct, demonstrable, physical alteration of the property” to trigger coverage. The court observed that pure economic losses were intangible and do not constitute property damage.</p>
<p style="text-align: justify;">The court further held that since plaintiffs did not experience a “period of restoration,” the policy did not provide business interruption coverage for the claims. Finally, the court noted that the policy’s Civil Authority coverage requires that a civil action be taken in response to physical loss or physical damage. Since plaintiffs had not alleged such damage to their property or any nearby properties, the Civil Authority coverage did not apply.</p>
<p style="text-align: justify;">The <em>Delaware Valley Management</em> case continues the favorable trend of courts finding no coverage for COVID-related business losses where no physical damage or loss can be shown by a policyholder. This remains an ongoing issue throughout the country and WCM will continue to monitor and report on the developments.</p>
<p style="text-align: justify;">Thank you to Mason Bailey for his contribution to this post. Please contact<a href="mailto:agibbs@wcmlaw.com"> Andrew Gibbs</a> with any questions.</p>

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